Sadiq Khan urges government: Let us use Londoners’ ‘roads tax’ to help fund growth in cycling and walking in capital

Mayor of London Sadiq Khan has urged the government to let Transport for London (TfL) use ‘roads tax’ paid by the capital's drivers to help fund growth in cycling and walking, as well as on the city's roads.

The reference to ‘roads tax’ came in a press release yesterday announcing TfL’s draft budget for 2018/19, the first year of its new five-year business plan.

It was no accident, with money raised by the government through Vehicle Excise Duty (VED) set to be ring-fenced for use exclusively on roads under reforms announced by George Osborne in 2015 when he was Chancellor of the Exchequer.

TfL’s latest budget sees it have to balance the books against the backdrop of a £700 million cut in central government funding.

“With the removal of the government grant, this will be the first year that TfL has had to address the critical and unique demands of London’s road network, including congestion, maintenance, renewals and air quality, without support from the government,” the press release said.

“Both TfL and the Mayor are calling on the government, as part of their Transport Investment Strategy, to make sure that a link between ‘roads tax’ and roads funding is applied to London as well.

“This would allow TfL and the boroughs to continue modernising London's road network, as well as support more walking and cycling journeys across the capital.

The press release continued: “From 2021, the £500 million raised every year from Londoners’ Vehicle Excise Duty will be collected by central government and only invested in roads outside the capital.”

As cycling journalist and author Carlton Reid points out on his I Pay Road Tax website, nowadays there is no such thing as ‘road tax’.

The process to abolish it was begun by Sir Winston Churchill in 1926, with the Road Fund, raised from motorists and ring-fenced to be spent on roads, disappearing in 1937.

Currently, motorists are required to pay VED each year, based on their vehicle’s emissions, or engine size for vehicles registered before 1 March 2001. Less-polluting and some older vehicles are exempt.

Roads are now funded from a mix of general and local taxation, and money raised through VED is not ring-fenced for use exclusively on roads – but that is set to change under the reforms unveiled Osborne in his June 2015 Budget, his first for a Conservative majority government.

Outlining changes to VED, he said: “I will return this tax to the use for which it was originally intended.

“I am creating a new Roads Fund. From the end of this decade, every single penny raised in vehicle excise duty in England will go into that Fund to pay for the sustained investment our roads so badly need.

“Tax paid on people’s cars will be used to improve the roads they drive on. It is a major reform to improve the infrastructure and productivity of our economy – and deliver a fairer tax system for the motorist.”

Osborne’s words were in stark contrast to those of one of his most illustrious predecessors as Chancellor, Churchill, who in a note to Treasury officials in 1925 wrote: “Entertainments may be taxed; public houses may be taxed; racehorses may be taxed … and the yield devoted to the general revenue.

“But motorists are to be privileged for all time to have the whole yield of the tax on motors devoted to roads. Obviously this is all nonsense … Such contentions are absurd, and constitute … an outrage upon the sovereignty of Parliament and upon common sense.”

Despite the fact the Road Fund was abolished eight decades ago, anyone who cycles on Britain’s roads will know that many motorists still take the view that ‘road tax’ exists and that people on bikes should not therefore be on the public highway since they don’t pay it.

Such views not only miss the point that road tax doesn’t exist and the VED they pay goes into a central pot together with other forms of taxation, but also that most adult cyclists also own cars (and are in fact more likely to come from multiple car-owning households than the average driver), and even if they were subject to some kind of duty, in line with the least polluting vehicles, they would pay nothing.

But under the forthcoming reforms, those motorists may feel even more of a sense of entitlement - although it's worth noting that at the time of Osborne's announcement, the £6 billion raised annually through VED was dwarfed by the £27 billion gained from fuel duty, which won't be ring-fenced.

As a result, there will be a shortfall between the amount of money set aside for roads through VED, and the amount of expenditure on them.

Commenting on the TfL draft budget, London’s Transport Commissioner, Mike Brown, said: “This budget sets out what we will deliver in the next year as part of the Mayor’s Transport Strategy as we work to achieve his vision for 80 per cent of journeys to be made by walking, cycling and public transport by 2041. 

“We will continue with our massive programme of investment in the transport network, modernising and boosting capacity, delivering healthier safer streets and providing affordable and accessible transport that will support London’s economic growth. 

“This will be achieved alongside our extensive savings programme which is reducing our day to day costs, while protecting frontline services, as we manage a £700 million per year reduction in government subsidy. 

“This will put us well on the way to generating an operating surplus for the first time in our history in 2021/22.”    

Deputy Mayor for Transport, Val Shawcross, commented: “The next year will be a truly exciting time for London, with the opening of the Elizabeth Line, and major projects like the transformation of Oxford Street.

“At the same time, today’s budget shows how we’re also looking to the future with further tube modernisation and an unprecedented commitment to walking and cycling infrastructure.

“Through our major programme of TfL efficiencies, I’m proud that despite the removal of our government grant, we’re both freezing TfL fares and building a world-class transport network that will improve quality of life for Londoners all across our city.”   

TfL’s board will consider the draft budget on Tuesday 20 March.